Washington, from time to time, falls into thinking its regulatory power is omnipotent. Such is the case of short-term, limited-duration insurance policies. The Obama-era policy to redefine “short term limited duration” from the generally accepted length of less than 12 months to less than three months was bound to be ignored and eventually abandoned. Today, the Trump administration released a long anticipated rule reversing Obama Administration policy and returning the definition of short term to less than 12 months.
As we pointed out in May of 2016, regulation of short term plans will be tough to accomplish from CMS. States are responsible for regulating insurance products, the ACA notwithstanding. Certainly CMS could declare short term plans that exceeded 3 months in duration would not constitute “qualified health plans” they could not prohibit their sale entirely. Indeed if HIIQ’s plans in force are any indication, short term plans only became more popular since the 2016 rulemaking:
The proposed rule makes no mention of renewals. The Obama-era rule included in the three month definition of short term all renewals. The industry got around that prohibition by declaring extensions of coverage (with a mandatory two day break) “reapplication.” It is not clear how the Trump administration plans to treat renewals that extend coverage beyond 12 months. The proposed rule does suggest they would promote policies that support automatic extensions:
The Departments solicit comments on whether any processes for expedited or streamlined reapplication for short-term, limited-duration insurance that would simplify the reapplication process and minimize the burden on consumers may be appropriate; whether federal standards are appropriate for such processes; and whether any clarifications are needed regarding the application of the definition of short-term, limited duration insurance in the proposed rule to such practices.
Streamlined reapplication processes, combined with a lack of enforcement at the federal level means regulation of short term limited duration plans will fall to the states which thus far have not been too inclined to jump into the breach. Seven states, Colorado, Maine, Michigan, Nevada, New Hampshire, North Carolina and Oregon have lengthy waiting periods between reapplication for a new short term policy.
With the demise of the individual mandate, short term, limited duration policies are even more attractive because they provide some basic coverage for healthy people without the shared responsibility penalty. CMS estimates that 100,000 to 200,000 people will decline to be covered by an exchange policy in favor of a short term duration plan. The departure of these people will, of course increase premiums for those that remain, costing the federal government more money in the form of subsidies.
The short term limited duration insurance definition combined with other administration initiatives that encourage association plans and the repeal of the individual mandate means the exchanges will continue to their transformation into a national high risk pool. Perhaps not the worst policy result but a far cry from what proponents of the ACA envisioned.
